Dear Friends,

As you are aware that fire insurance policy is a contract between insured and the insurer through which insurer promises the insured to indemnify any loss or damage to the insured property from fire.

The term fire in a fire insurance is interpreted in the literal and popular sense. There is fire when something burns. In other words fire means visible flames or actual ignition. Simmering/ smoldering is not considered fire in Fire Insurance. Fire produces heat and light but either of them alone is not fire. Lightening is not a fire but if it ignites something, the damage may be due to fire.

Under section 2(6A) Insurance Act 1938, the fire insurance business is defined as follows: “Fire insurance business means the business of effecting, otherwise than independently to some other class of business, contracts of insurance against loss by or incidental to fire or other occurrence customarily included among the risks insured against in fire insurance policies”.

Types of policies

Under fire insurance there are different types of fire insurance policies. These different types of policies are another important feature of fire insurance.  The major ones are, specific policy, valued policy, comprehensive policy, floating and replacement policy.

1. Specific Policy

According to this policy, the loss of up to a specific amount of money which is less than the value of the property insured is covered. The actual value of the property is not taken into consideration when determining indemnity. If the insurer inserts an ‘average clause’ it means that the policy holder will bear a portion of the loss him/herself.

• Comprehensive Policy

Under this fire insurance policy, the insurance company covers fire, theft, burglary and profits that may be lost when a business closes due to fire. A comprehensive policy is known as the all in one fire insurance policy.

• Valued Policy

Under this policy the policy holder can only recover a fixed amount of money that is agreed upon at the time the insurance policy is taken. This means that only a fixed amount of money is compensated for in the event of a loss regardless of the actual amount lost.

• Floating policy

A floating policy is a fire insurance policy that covers properties or goods located in different places but under the same name and premiums. Such a policy is always subject to average clause.

• Replacement or Re – instatement policy

In this type of policy, the insurance company chooses either to pay cash for any property lost by fire or reinstate it. By reinstating, the insurer pays for the replacement of the property lost or destroyed by fire.

TYPES OF PROPERTIES COVERED

Other important features of fire insurance are concerned with the types of properties that are covered by fire insurance.

1. All moveable and immovable property is covered under fire insurance. This includes but is not limited to buildings, (Both complete and incomplete, interior, partitioned and electricals. The value of land is not included in this case);
2. Plant and machinery, equipment and accessories, (New and second hand, although this may differ with the type of policy. Some fire insurance policies cover obsolete machinery);
3. Stocks (Finished, work in progress, and raw materials);
4. Household goods, spares, cable piping, furniture, fixtures and fittings

PERIOD OF COVERAGE

The last feature of fire insurance is the period covered. Fire insurance is an annual policy that is renewable each year. In some countries, the period of cover can be extended to 3 years with discounted premiums.

PRACTICE OF FIRE INSURANCE IN INDIA In India, under fire insurance policy, in addition to fire, other perils are also included and the policy is known as “Standard Fire and Allied Perils Policy”.

The perils specified in the fire policy are:

A. Fire:  The term fire in a fire insurance is interpreted in the literal and popular sense. There is fire when something burns. In other words fire means visible flames or actual ignition. Simmering/ smoldering is not considered fire in Fire Insurance. Fire produces heat and light but either of them alone is not fire. Lightening is not a fire but if it ignites something, the damage may be due to fire.

B. Lightning: Any lightning due to cloud burst may damage the property and the same will be covered under the fire policy. Lightning may cause crack in building and it may cause ignition due to which fire emerges and destroy your personal belongings.

C. Explosion / Implosion: Sudden change in the temperature in any plant & machinery or exposure to atmospheric pressure may result into loss and the same will be covered under fire policy. The policy covers fire damaged caused due to explosion or implosion. The policy, however, does not cover damage or destruction caused to the boilers, economizers, or other vessels that release steam and apparatus or machinery that utilizes centrifugal force to function. Pressure & Boiler Plan Insurance Policy will basically cover these risks. 

D. Aircraft Damage: Any damage to the property due to any droppings by aircraft or by itself will also be covered under the fire policy. Both fire and other damage to the property caused directly by aircraft or any aerial device, also damages caused by things dropped by aircraft are covered in the fire policy. However, damages due to pressure waves caused by aircraft traveling at supersonic speed are taken out from the policy. 

E. Riot, Strike and Malicious Damage (RSMD): Any damage to the property due to public or strike by employees or malicious damage (intentional damage) by any person will be covered under this policy.

F. Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation (STFI): The property damage due to any of these storms and flood will also be covered under this policy. The meaning of these perils lies in different intensity of the storms. Flood not only means the leakage of water through river but also accumulation of water due to heavy rains in the premises.

G. Impact Damage: Damage to the property due to impact by any Rail / Road vehicle or animal by direct contact, but not belonging to or owned by the Insured or any occupier of the premises or their employees while acting in the course of their employment. Impact by an animal, a vehicle, or by an off-track rail to the property is covered, delivered by the vehicle or the animal should not belong to the owner of the property or any other occupier of the premise. Moreover, the impact caused by the vehicle by any of the employees while acting in the course of their employment is not covered. In the policy damages occurring to the boundary wall of insured property are also included in the coverage. 

H. Subsidence and Landslide including Rock Slide Destruction or damage caused by Subsidence of part of the site on which the property stands or Land slide / Rock slide.

I. Bursting and/or overflowing of Water Tanks, Apparatus and Pipes: If due to bursting or overflowing of water from the water tanks installed in the premises of the policyholder any damage or loss to the property of the policyholder is caused, it will be covered under this policy.

J. Missile Testing Operations: Any loss or damage due to missile testing by the Govt. or otherwise will be covered under this policy.

K. Leakage from Automatic Sprinkler Installations : In most of the organizations as a fire protection measure, automatic sprinkler system is installed. If due to non–usage of the sprinkler system or otherwise it starts leaking and damages the property, then it will be covered under the fire insurance policy.

L. Bush Fire: It means fire spread from the bushes (small fire) but will not include forest fire.

THE FIRE INSURANCE DOES NOT COVER THE FOLLOWING RISKS KNOWN AS GENERAL EXCLUSIONS

• (a) The first 5% of each claim subject to a minimum of Rs. 10,000 in respect of each loss arising out of “Act of God perils” such as Lightning, STFI, Subsidence, landslide and Rock slide covered under the Policy
• b) The first Rs. 10,000 of each loss arising out of other perils in respect of which the Insured is indemnified by this Policy.
• The Excess shall apply per event per Insured.
• Loss, destruction, or damage caused by war, and kindred perils.
• Loss, destruction, or damage directly or indirectly caused to the insured property by nuclear peril.
• Loss, destruction, or damage caused to the insured property by pollution or contamination.
• Loss, destruction, or damage to any electrical and / or electronic machine, apparatus, fixture or fitting (excluding fans and electrical wiring in dwellings) arising from or occasioned by over-running, excessive pressure, short circuiting, arcing, self-heating or leakage of electricity, from whatever cause (lightning included).
• Loss of earnings, loss by delay, loss of market or other consequential or indirect loss or damage of any kind or disruption whatsoever.
• Earthquake Vulcanic eruption: Earth Quake can be covered under the fire policy but by paying additional premium,
• Loss or damage due to Terrorism unless specifically covered.
• Loss or damage by spoilage resulting from the retardation or interruption or cessation of any process or operation caused by operation of any of the perils covered.
• Loss by theft during or after the occurrence of any insured peril except as provided under Riot, Strike, Malicious and Terrorism Damage cover.
• Loss or damage to property insured if removed to any building or place other than in which it is herein stated to be insured, except machinery and equipment temporarily removed for repairs, cleaning, renovation, or other similar purposes for a period not exceeding 60 days.

LET’S DISCUSS CONDITIONS UNDER WHICH FIRE DUE TO LIGHTNING IS ADMISSIBLE.

The majority of lightning strike insurance claims involve damage due to:

• Fires. A lightning strike can spark a fire upon contact with almost anything it touches, causing significant damage in a matter of minutes. While commercial fire insurance may cover fires started by lightning, coverage for smoke damage to walls and flooring or water damage from firefighting efforts often vary from policy to policy.

• Electrical damage. Lightning can wreak havoc on appliances, computers, stereo equipment, phone systems, and other electronics, permanently damaging the electrical fixtures and infrastructure of your business. The power surge from a lightning strike can send an unbridled electric current through electronic devices, weakening or completely frying the circuit board. Property owners may not know the full extent of lightning damage simply because some systems may work intermittently, eventually failing weeks after the initial strike. Electrical damage to devices can also void the warranty, resulting in higher repair costs in the future.

• Indirect effects. A bolt of lightning can cause significant damage even when it does not make direct contact with a commercial property. Lightning may strike a tree next to the property, causing it to drop heavy limbs onto roofs or through windows. A strike to an electric fence surrounding the property can travel throughout the electrical grid, causing the loss of livestock and forcing the replacement of miles of fencing. Even when a lightning strike occurs miles away from your property, it can bring down electrical lines or affect wireless communication, interrupting your business operations.

PLEASE NOTE THAT: Danger from lightning is not generally included in the fire insurance policy. But is lightning causes ignition, the loss would be covered , for that is fire within the meaning of the term, and the cause of fire is immaterial. Similarly , the insurers will not be liable for any loss or damage caused by electricity , unless property insured or a part thereof . or anything contained in it, is actually ignited.

Damage as a result of putting out the fire would be covered by the fire risks. It was held in Per Kelly . CB in Stanely Vs. Western Insurance Co. (1868)37LJ Ex 73(75);” it has been contended -that where property is destroyed or injured in the course of exertions made to extinguish a fire , the loss is within the policy. I agree that it is so and no court ought to be otherwise than anxious to extend remedy , then given to the person whose property is destroyed. I think any loss resulting from an apparent necessary and bone fide effort to put out a fire, whether it be by spoiling goods by water or by throwing articles of furniture out of the window , or even by destroying a neighbouing house by explosion for the purpose of arresting fire, in fact, every loss directly or if not directly at least consequently resulting from fire is within the term of the policy.”

National Insurance Co. Ltd. vs M/S. Gold Stone Technologies Ltd. on 23 February, 2016:    Brief facts of the case are that a Standard Fire & Special Perils policy was taken by the complainant/respondent in the year 2005 which was renewed upto 26-02-2008.   Due to gale, thunder storm and lightning on 11-04-2007, the tower erected on the terrace of the office of the complainant got completely damaged and consequently the electronic equipments including five electronic control cards in the networking system also got damaged and became disfunctional showing error in the system.   The plant & machinery and computer accessories were insured for Rs.1,50,00,000/- under the policy. The complainant informed the insurance company in writing on 02-05-2007 enclosing the report of the service provider for the loss.   The appellant insurance company appointed a surveyor on the same day who visited the premises and submitted his report on 13-06-2007.   The appellant repudiated the claim on 18-06-2007 on the following ground:  “2.     The loss is due to heavy surges that could have been induced in the incoming power supply which in terms affected the electronic components resulting in their failure/breakdown.  The above said loss falls beyond the scope of the fire insurance policy obtained by you. We therefore express our inability to be of any assistance in this regard.”   DECISION OF STATE CONSUMER DISPUTES REDRESSAL COMMISISON The complainant filed a consumer complaint before the State Commission which was allowed vide its order dated 22-04-2009  as under:    “Accordingly the complaint is allowed directing opposite parties, who represent one and the same institution, namely, the insurance company to pay to the complainant Rs.25,42,772.85/- with 9% interest from the date of complaint till the date of realization as also an amount of Rs.3,000/- by way of costs. This order shall be complied within six weeks from the date of order.” CONTENTION OF INSURANCE COMPANY: The learned counsel for Insurance Company drew our attention to the General Exclusion No.1 and 7 which read as follows: “1. This policy does not cover (not applicable to policies covering dwellings) The first 5% of each and every claim subject to a minimum of Rs.10,000/- in respect of each and every loss arising out of “Act of God perils” such as Lightning, STFI, Subsidence, Landslide and Rockslide covered under the policy. The first Rs.10,000/- for each and every loss arising out of other perils in respect of which the insured is indemnified by this policy. The Excess shall apply per event per insured. 7. Loss, destruction or damage to any electrical machine, apparatus, fixture, or fitting arising from or occasioned by overrunning, excessive pressure, short circuiting, arcing, self heating or leakage of electricity from whatever cause(lighting included) provided that this exclusion shall apply only to the particular electrical machine, apparatus, fixture or fitting so affected and not to other machines, apparatus, fixtures or fittings which may be destroyed or damaged by fire so set up.” The learned counsel stated that the present case is covered under General Exclusion No.7 because the computer and electronic control cards are electrical machines and even if they are destroyed by the effect of lightning, the loss could not be covered under the policy. REPLY OF INSURED The learned counsel for respondent stated that lightning is clearly mentioned in the policy at No.II which is covered under the policy and it is mentioned without any qualification. Even if there is voltage fluctuation in the electric supply due to lightning thereby damaging the computer components, it would be deemed to have been caused due to lightning only and the loss would be covered under the policy. The learned counsel also stated that the State Commission has already allowed deduction as per the General Exclusion No.1 OBSERVATIONS AND DECISION OF NCDRC We have carefully considered the arguments advanced by both the parties and have gone through the records. First of all, we find that complainant has informed the insurance company in writing on 02-05-2007 whereas the incident happened on 11-04-2007. Though the complainant in his complaint has mentioned that he informed the insurance company on next day and the insurance company asked him to get the loss assessed by the service provider. The first written letter was only sent on 02-05-2007 which does not mention any previous communication (either telephonically or written) with the insurance company.   We also find that one of the General Conditions mentioned in the policy at Point No.6 is as follows;   “6. (i) On the happening of any loss or damage the Insured shall forthwith give notice thereof to the Company and shall within 15 days after the loss or damage, or such further time as the Company may in writing allow in that behalf, deliver to the Company; a) A claim in writing for the loss or damage containing as particular an account as may be reasonably practicable of all the several articles or items or property damaged or destroyed, and of the amount of the loss or damage thereto respectively, having regard to their value at the time of the loss or damage not including profit of any kind. No claim under this policy shall be payable unless the terms of this condition have been complied with”. The “lightning” as a peril is covered under the policy. The meaning of “lightning” as given in the Concise Oxford English Dictionary is “occurrence of a brief natural high voltage electrical discharge between a cloud and the ground or within a cloud, accompanied by a bright flash or thunder”.   In the present case there is no evidence on the record that lightning struck the building. Surveyor report only mentions that due to reported weather conditions such as lightning, thunder storm and heavy gale winds prevailing during the evening hours of 11-04-2007, heavy surges could have been induced in the supply lines which could have affected the sophisticated and delicate electronic components mounted on cards resulting in the failure of the same. The common understanding of lightning as a peril is the electric discharge between cloud and the ground. As there is no qualification mentioned with the peril of “lightning” in the policy, we are of the opinion that the extended view in respect of peril of lightning may be taken even to cover electrical discharge within the clouds.. From this point of view, damage caused by “lightning” as a discharge between cloud to cloud may also be treated as covered under the policy.   The surveyor in his report has mentioned the following:   “Occurrence:   As informed Shri V.K.K. Varma, Mngr-IT of M/s. Gold Stone Technologies Ltd., the Hyderabad city experienced heavy gale winds followed by thunder storm at around 1800 hrs on Wednesday the 11th April 2007. The power also failed for about 02 hrs in and around the surrounding areas. Due to external surge from lightning, the Nortel passport 7480 and Nortel Meridian 61C broke down. On inspection by the Service Engineer, the following cards were found damaged and beyond repairs.   01. Controller Card on PBX : 02 Nos. 02. Processor Card on Passport : 02 Nos. 03. Two parts 100 base Ethernet card : 01 No.   Cause of Loss: The panel was connected to the incoming power supply from the APSEB sources. Most of these electronic components work on 24V DC supply. To achieve this, the incoming AC supply has to be converted to DC. Due to reported weather conditions such as lightning, thunder storm and heavy gale winds prevailing during the evening hours of 11-04-2007, heavy surges could have been induced in the supply lines which could have affected the sophisticated and delicate electronic components mounted on cards resulting in the failure of the same. There were no evidences of any fire occurring inside the panel and/or on the affected cards and/or on power supply/control cables. Hence in our opinion, it is a breakdown of components on the cards due to heavy surge in the power supply and the damages to the cards could not be attributed to any fire.”   It seems that the surveyor has based his findings on the facts narrated by the representatives of the respondent company and has not tried to corroborate with other evidence or his independent investigation. The surveyors are appointed by the insurance company under the Insurance Act, 1938 to assess loss or damage. The surveyor in his report has mentioned that due to reported whether conditions such as lightning, thunder storm and heavy gale winds prevailing during the evening hours of 11-04-2007, heavy surges could have been induced in the supply lines which could have affected the sophisticated and delicate electronic components mounted on cards resulting in the failure of the same. The insurance company has also accepted this cause of loss. However, the insurance company has claimed benefit of General Exclusion Clause No.7. According to this clause, the loss, destruction or damage to any electrical machine, apparatus, fixture or fitting arising from or occasioned by overrunning, excessive pressure, short-circuiting, arcing, self-heating or leakage of electricity from whatever cause (lightning included) could not be covered under the policy provided that this exclusion shall apply only to the particular electrical machine and not to other machines which may be destroyed or damaged by fire so setup. This clause is not directly applicable in the present case because there is no leakage of electricity as lightning has not struck the machine and there was no fire.   From the above examination, we have reached to the conclusion that the cause of loss as assessed by the surveyor is covered under the policy. However, we feel that there have been lapses on the part of  the complainant as well as the insurance company.   As per General Condition No.6, the claim of the complainant should have been submitted within 15 days of the incident because no time was extended by the insurance company in writing. On the other hand the insurance company has entertained the claim which was not within 15 days of the incident without extending the time period in writing and appointed the surveyor. Moreover, this ground has not been taken for repudiating the claim. The surveyor also did not give any finding on the loss to the tower at terrace which was the main subject and cause of damage as per the complaint. In the circumstances of the case, we are of the view that the balance of justice would be achieved if 50% of the claim is allowed. After examination the State Commission has allowed the claim of Rs.25,42,772.85/-.    We allow the claim of Rs.12,71,386/- only which is 50% of the claim allowed by the State Commission.   Based on the above discussion, the appeal is partly allowed and appellant/opposite party is directed to pay Rs.12,71,386/- ( Rupees twelve lacks seventy one thousand three hundred eighty six only) to the complainant with interest at the rate of 7% per annum from the date of order of the State Commission i.e. 22-04-2009 till realisation. Order of the State Commission stands modified accordingly.

LET’S CONSIDER A GENERAL EXCLUSION Exclusion No: 7 of SFSP Policy “ Wording “ The Policy excludes Loss, destruction or damage to any electrical and / or electronic machine, apparatus, fixture or fitting (excluding fans and electrical wiring in dwellings) arising from or occasioned by over-running, excessive pressure, short circuiting, arcing, self-heating or leakage of electricity, from whatever cause (lightning included).   This Exclusion has been defined to exclude the loss or damage to any kind of electrical / electronic machinery / system  which may get damaged on account of fire generated within itself or on account of excessive voltage / short circuit etc which may eventually lead to fire and for any lay person it may appear that the cause of loss is fire. However if state it differently “ the machine caught fire due to some kind of malfunction or voltage fluctuation or short circuit which led to fire “ The sequence of events as stated above make it clear that the proximate cause of loss for this machine is not “ Fire “ but some kind of mal function , voltage fluctuation or short circuit which are not insured perils under the SFSP Policy. Hence the claim is not covered and payable under the policy. Even though the claim is not covered as it has not been caused by an insured peril “ fire “ but the exclusion has been specifically designed for two purposes.  1. At the time of claim  it may not be possible to identify if the fire occurred first or if the short circuit occurred first. To avoid this dispute the exclusion has been worded as above. 2. The most important is the second part of the exclusion which states that the exclusion is applicable only to one machine in which the fire originally started and not applicable to other machines. This portions clearly states that in case of such happening only one machine which is suspected to have caused the loss shall be excluded. All other machines are covered because the proximate cause of loss for them is fire and not the short circuit.   It may be pointed out that what ever is excluded as per exclusion above stands covered under Machine Break Down  Insurance. Accordingly in case the insured is interested to get their electrical equipment covered against such exigency then they should opt for additional MBD Insurance.   Examples 1. An insured X claimed that there was a blast in the Main Power Transformer of 5 MVA Capacity and the transformer caught fire. The estimate of repair is Rs. 15,00,000,00/- no other loss is reported. This loss stands excluded as per above exclusion because it is clear that there had been some kind of breakdown within the transformer which had caused blast. The fire was a sequel to this malfunction. Accordingly the proximate cause of loss in this case is not fire but breakdown which qualifies to be covered under MBD Insurance and not under SFSP Policy.   2.  In another case it was seen that in a finished goods Godown the fire started due to short circuit in one of the AC units installed. In the Godown and all other ACs fans and goods were also burnt. Under this claim the exclusion shall apply to one AC unit in which the fire had started but all other AC units are covered because for the first AC the proximate cause of loss is short circuit but for all other ACs the proximate cause of loss is fire which is an insured peril under SFSP Policy. However the Policy specifically excludes “Loss, destruction or damage to any electrical machine, apparatus, fixture, or fitting arising from or occasioned by over-running, excessive pressure, short circuiting, arcing, self heating or leakage of electricity from whatever cause (lightning included) provided that this exclusion shall apply only to the particular electrical machine, apparatus, fixture or fitting so affected and not to other machines, apparatus, fixtures or fittings which may be destroyed or damaged by fire so set up.” This exclusion has been incorporated in the policy because the machine which caught fire on it’s own was damaged not because of fire but because some kind of breakdown or failure which resulted into fire. In this case the proximate cause of loss is not fire but failure or breakdown. 3. A Transformer, in running condition would catch fire due to failure of insulation of the windings or failure of dielectric of the transformer oil. This failure would cause flash due to short circuit and may or may not result in fire. Hence even if the fire had not occurred the transformer had been damaged due to breakdown, which is not an insured peril under the policy. Accordingly the claims of machinery in which the machine catches fire on it’s own while in running condition or even while it is plugged in are invariably denied under the above exclusion. Where ever the cause of loss / fire is attributed to Short circuit, which is very common cause, a suitable deduction in the claim amount has to be done under the above exclusion. In case the cause of short circuit is identified, eg one motor or one machine the same may be disallowed but the rest of the loss shall be payable. Similarly, the Loss to main power transformer of an insured was denied which was damaged due to flash in the transformer which had resulted into a fire.    4. This exclusion is also applicable to claims of electronic / electrical equipment which get damaged and the insured claims that the same were damaged due to lightening. It is a common fact that some machines get damaged during heavy rains / thunder / lightening even though there is no visible impact of lightening in and around the premises. The fact that these items get damaged is true but it is not necessarily because of lightening but it is because of leakage of current in the wires.  The rains can cause short circuit in the supply wires or cause short of one of the phases with neutral due to which the current flows through the machines even if they are switched off (Between neutral and Earth connection). Accordingly in such cases the lightening can not be directly held responsible for the loss. Accordingly the above exclusion is very clear and has specifically included the words “Including lightening” while defining the exclusion. It may also be reiterated that the lightening dispenses huge amounts of energy which is sufficient to char even the mightiest of the buildings or structures. In the event of a lightening strike the loss would be universal and not only to computers and electronic equipment but would also involve burning and charring of the objects like wood paper etc. In the absence of any kind of signs of lightening strike all claims pertaining to electrical and electronic devices are likely to be rejected. 5. A Claim was reported for fire in the DG set under SFSP Policy. The complete Engine, Alternator and Acoustic Canopy were damaged / gutted in fire.   The Claim can be assessed considering that the DG set comprises of three independent entities .  Engine which is not an electrical machine and hence does not fall under exclusion VII of the SFSP Policy, alternator which is electrical machine and falls under exclusion VII of the policy Canopy is an inactive structure and hence does not fall under Exclusion VII of the SFSP Policy accordingly it can be considered that fire started due to short circuit in alternator and  exclude alternator under exclusion VII and the rest of the loss to the engine and the canopy can be paid.

CONCLUSION:  from above discussion we conclude that any ignition due to lighting causing damage or injury to property and person is covered under Fire Insurance Policy. If there is malfunction in machine due to which fire breaks and damages other machines and property , in this case also only first machine will not be covered but other machines and equipment are covered by the fire policy.

DISCLAIMER:  the article presented is only for sharing information with the readers. The views are personal, shall not be considered as professional advice. In case of necessity do consult with professionals for more understanding and clarity on subject matter.

AUTHOUR: FCS Deepak P SIngh[ B.Sc. FCS, LLB, AIII, CIAFP]/cs.deepakpsingh@gmail.com